DEFINITION of Social Security
Social Security is an important part of the Old-Age, Survivors, and Disability Insurance program and run by the Social Security Administration. This is a social welfare and insurance plan managed by the U.S. federal government that pays benefits to retirees, workers who become disabled and survivors of deceased workers. Social Security's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.
Retirement benefits may begin as early as age 62 at a discounted rate, and the amount you receive in retirement increases from the 62 through 70. You do not have to take benefits at 70 years old, but there is no monetary benefit to waiting beyond that age Social Security bases the amount of income one receives on " average indexed monthly earnings" during the 35 years in which you earned the most. Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work histories. A divorced spouse can also receive spousal benefits, if the marriage lasted 10 years or longer.
BREAKING DOWN Social Security
How Social Security Calculates Benefits
The original program was part of President Franklin D. Roosevelt's New Deal plan to lift the U.S. out of the Great Depression. Today, payroll taxes collected from employees and companies fund the program. SSA places monies into the Social Security Trust Fund and the government manages payments along with the Federal Reserve Board.
Social Security benefits are unique to each individual's situation but factors include, lifetime earnings, marital status, total retirement income (this amount affects whether the IRS taxes your benefits), retirement age and if your home state taxes your benefits.
The Future of Social Security
Social Security has faced serious solvency issues for many decades; today's payments come from current workers' payroll contributions, and it remains uncertain if they will have money available for them when they retire. Social Security reform — whether through legislation, tax law changes, or privatization — has been a major political issue that draws strong opinions from different demographic segments.
Social Security faces the real threat of becoming insolvent because of factors such as longer life expectancies, a large Baby Boomer population entering retirement age, and inflation.